Lebanon is set to impose austerity measures to combat its bulging fiscal deficit, Prime Minister Saad Hariri has said, warning of an economic "catastrophe" if public spending keeps rising.

"As a government, we are required to issue the most austere budget in Lebanon's history because our financial position doesn't allow us to increase spending," Hariri told reporters on Wednesday after a session of parliament.

"If we continue like this we will reach a catastrophe," he said, one-year after his government committed to slashing public spending in order to unlock billions in aid pledged by international donors.

Lebanon has a new government, but its economic future looks just as bleak

Hariri did not specify what measures his government was mulling but hinted the package may include wage cuts for soldiers.

"The soldier is prepared to pay with his blood for his country," he said, noting that Lebanon now requires "sacrifices".

Retired soldiers held a protest in Aley on Tuesday to demonstrate against any possible cuts to salaries, calling it a "red line".

Lebanon is one of the world's most indebted countries, with public debt estimated at 141 percent of gross domestic product in 2018, according to credit ratings agency Moody's.

The budget for 2019 has yet to be finalised, but public sector workers fear that austerity measures may mean cuts to their salaries.

Draft budget

Lebanon's draft budget for 2019 projects a deficit of less than 9 percent of GDP compared to 11.2 percent in 2018 and includes "wide reductions" in spending based on the need for "exceptional austerity measures", the finance minister told the Reuters news agency on Wednesday.

The budget, seen as a critical test of the heavily indebted state's determination to reform, is based on an economic growth forecast of 1.5 percent in 2019, which could rise to around 2 percent as the economy picks up, Ali Hassan Khalil said.

"The most important thing is that we have put ourselves on the path of dealing with the accumulated deficit," Khalil said.

The draft represented an "introduction to more deficit reductions in the 2020 and 2021 budgets," he added.

The draft includes measures to tackle tax evasion and to boost customs revenues in addition to "tax amendments" for high earners, he said.

There would be no tax increases for the poor and those with middle incomes, he said.

Khalil did not give any details of the spending reductions.

Public sector strike

Hundreds of civil servants protested in central Beirut on Wednesday to denounce any possible cuts to their salaries, the AFP news agency reported.

As Lebanon’s political class fails, Beirut’s streets are stirring once again